Crude Check: Oil facing resistance

Akhil Nallamuthu |BL Research Bureau | Updated on: Mar 05, 2022

Stock market concept with oil rig in the gulf and oil refinery industry background,Double exposure | Photo Credit: Kanoke_46

However, Russia-Ukraine conflict could keep prices elevated

The fire incident in one of the Ukrainian nuclear stations spooked the markets and the fear of the conflict escalating to new heights increased resulting in oil prices extending the recent rally. Although there are no sanctions yet on Russia’s energy exports, there are reports of no takers for the Russian oil. One of the key reasons could be that several Russian banks are now kept out of SWIFT, the global banking network, raising concerns regarding the transactions involved.

That said, the Organisation of Petroleum Exporting Countries’ (OPEC’s) Joint Ministerial Monitoring Committee (JMMC) last week met and decided that the production will be increased by previously agreed 400,000 barrels per day (bpd). There have been expectations that there could be an increase in this targeted output. Sticking to 400,000 bpd supported prices. On the other hand, there were rumours about US-Iran nuclear deal reaching the final stages which could result in Iranian oil entering the market. However, the market shrugged this off and the prices remained at elevated levels as the Iranian output is less significant when compared to Russia.

Brent futures ($118)

The Brent futures on the Intercontinental Exchange (ICE) hit a fresh high of $119.8 a barrel last week as the contract showed no signs of weakness. But there was huge intraweek volatility as the contract swung in a $20 range last week. Even though there are so much of uncertainties with respect to the fundamentals, the price band of $115-120 is a substantial resistance. If this is breached, we could witness a swift rally to $130. A breach of this level significantly improves the odd of the Brent futures hitting $150. But if the price drops from here because of the resistance, price could find support at $100 and $86.

MCX-Crude oil (₹8,580)

The continuous futures contract of crude oil on the Multi Commodity Exchange (MCX) extended the rally and hit a new high of ₹8,817 last week. Yet, towards the end of the week, the contract was largely trading in a sideways trend and the price action shows that the boundaries of the range are at ₹8,000 and ₹8,750. Therefore, a clear breach of either of these should aid us in assuming the direction of the next move.

Although the trend is up, participants are advised to stay out as prices are near strong resistance levels, which could trigger a correction. So, traders can buy the contract if ₹8,800 is decisively breached. Place stop-loss at ₹8,180 and exit the longs when price hit ₹10,000.

Published on March 05, 2022
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